5 tips for managing your accounts receivable successfully

For a small or medium sized business, cash flow is critical. The client base may be growing. Sales may be up. But if accounts receivable are not managed in a sound and structured way, there simply won’t be enough capital to run the business effectively.

If a business sells to customers on credit terms – in other words, if invoices are not payable immediately, but rather within 30, 60, 90 or even 120 days – it’s essential to have a robust invoice collections system in place. This helps to keep close tabs on receivables, maintain a steady cash flow, and hopefully reduce the risk of late payments and bad debt.

Do these issues apply to your business? Here are five tips for ensuring effective invoice collections and protecting your cash flow.

1. Do a credit check before you extend credit

In an ideal world, all customers would pay for your products or services upon delivery. However, many customers push for credit terms, which means you wait days or even months for the cash that’s owing to your business.

Don’t forget that credit is a privilege and should only be granted to customers who are creditworthy. It’s essential to perform credit checks on all customers before agreeing on your credit sales terms.

2. Follow up with a customer satisfaction call

A few days after delivering your goods or services, follow up with a friendly phone call. Ask whether your customer is satisfied with the goods and/or level of service provided. This will not only help you to continue improving the customer experience, but also ensure that you don’t have an unhappy customer on your hands, who may be reluctant to pay your bill.

If concerns or complaints are raised, deal with these immediately. And before you end the conversation, check whether your customer has received your invoice and reinforce its due date.

3. Keep track of accounts receivable and react swiftly if they’re overdue

Put a system in place that alerts you when payments are due. This way, you’ll know immediately when a payment date has been missed, so you can swiftly send a friendly reminder. Include a duplicate invoice and a gently request whether your customer simply forgot to pay, or lost the bill.

If you have still not been paid within a working week, send another friendly reminder that the account is overdue. And follow this up with a phone call to find out if there’s a reason for the late payment. Get your client to commit to a payment date, in writing.

4. Collection letters

    If another working week passes without payment, it’s now time to send a formal collection letter that:

  • Confirms what was discussed in previous emails and phone calls
  • Demands immediate payment
  • Communicates the consequences of non-payment (for example, you could suspend the customer’s credit privileges)

Be sure to send collection letters, and any further correspondence, via registered mail so you have a record that it was received.

5. Consider professional support

Instead of working your way through these resource-consuming steps, you could rather consider partnering with an expert factoring company from the very beginning.

When you enter a factoring agreement, you sell your accounts receivable to a factoring firm, which provides you with the working capital you need to keep your business running optimally.

If you choose to partner with Merchant Factors, our professional team will also handle your debtor administration and credit control. This means that you can focus on winning new business, while our experts:

  • Carry out thorough credit checks on your customers
  • Send monthly statements
  • Phone debtors for payments due
  • Manage reminders and final demands
  • Handle receipting and reconciliations
  • Provide guidance if it becomes necessary to institute legal action

You’ll not only maintain a healthy cash position, but also avoid the headache of managing your debtors book and credit control functions internally.

Improve your cash flow now

Merchant Factors was founded in 1988 to offer businesses of all sizes an alternative to traditional bank loans and overdraft facilities. Specialising in local and cross-border finance, this fully independent financial institution offers tailor-made facilities to suit the unique business needs and operational cycles. Merchant Factors is also able to offer the shortest turnaround from application to pay-out in the industry.

Since its inception, Merchant Factors has successfully helped over 2,000 growing organisations to meet their financial goals.

Chat to us about your business goals. For fast, flexible finance – contact Merchant Factors today

Finance beyond the Numbers.